Queenie Bartley had come off her electric scooter and made a real mess of her left leg. At 93, a prolonged stay in hospital followed by transfer to a residential home would be the norm. But not in Southend. At Pantile House, Queenie is completing her recovery and getting her strength back. Although all options remain open, she is starting to think seriously about going back to her own home. "I would be able to do what I want," she says thoughtfully.

Pantile is the kind of facility that Alan Milburn, the health secretary, has in mind when he talks about creating a new "intermediate" tier of care. As the government's national beds inquiry last week reported, two-thirds of general and acute hospital beds are occupied by people aged 65 or more and possibly 20% of them need not be there if other services were available.

In Southend, Pantile is enabling earlier discharge of older hospital patients who are no longer in medical need but are not fit to return home. As a result, possibly 10 more beds are free at any one time. But it is doing far more: by rehabilitating its "clients" through intensive therapy, it is preventing them having to go into residential or nursing care and enabling them to go home, often with lighter support packages than they would otherwise have required.

"We thought we could probably reduce some of the demand for residential care, but expected to end up with a lot of high intensity community care packages," says Jane Held, social services director of Southend council. "To our surprise, the current profile is not like that. We are discharging considerably more people than we expected with lower intensity packages."

The scheme, which started in January last year but got fully into its stride only in July, is a true joint venture between social services and the local NHS. It is housed in a former council residential home and Southend and Essex social services together contribute some £619,000 annually and provide the building, managerial staff and care and domestic workers. The NHS chips in £355,000 and provides therapy and community nursing services. There are 24 rehabilitation beds and 10 respite, with a district nurse on site full time to offer practical support and advice.

This permanent nursing presence is one of several issues which have caused problems over registration of the unit as a non-clinical facility. Another was the teaching of one client to "peg feed" himself, using a tube into his stomach, in order that he might return home.

Perhaps the biggest stumbling block, though, and one that the government will have to address when it gets round to decisions on long-term care, has been that people are allowed a maximum 56 days in such "step down" care environments before charges kick in. Several Pantile clients have overrun this limit and there has been correspondence with ministers. The circle seems to have been squared, for now, by informing the clients concerned that a charge will be added retrospectively to any bill incurred if and when they enter residential care.

Hospital patients are assessed on their suitability for Pantile before being invited to transfer. A projection is made for each client of what the likely outcome, and cost, would otherwise have been - thus enabling close monitoring of the scheme's progress.

With early indications that 70% of clients (average age 87) are returning home, Held reckons net savings are running at about £225,000 a year. Pippa Sage, director of rehabilitation services at Southend Healthcare NHS trust, which runs Southend hospital, is a little more cautious. "We felt, from the hospital's perspective, that the project would be worth 10 beds, enabling us to take more emerg encies and do more elective surgery. and there is evidence beginning to emerge that supports that, "she says.

To achieve these results, the Pantile therapy regime is necessarily rigorous. Clients who arrive expecting an easy time are in for a shock. Adapting from hands-on to "hands in pocket" care, deliberately not intervening to provide automatic assistance or fetch and carry, has equally been a shock for social services staff accustomed to a residential home environment. Some have not been able to make the change.

On the other side of the partnership, meanwhile, joint working and training has forced NHS staff to address their own practice. "Our people couldn't understand what was going on," says Ruth Bull, adult resources manager for social services. "It wasn't just that they were speaking in jargon; it was some of the cryptic signs that they tend to use to write to each other."

Above all, though, the Pantile team has together had to tackle external preconceptions of what a rehabilitation scheme is all about. Bull says: "People come round and ask: 'Where are the exercise machines?' What we are talking about here is a very high dependency level. The difference between going into a residential home and being able to stay in your own home may be being able to work a hoist. That's what we mean by rehabilitation."